One of the more provocative business articles I’ve read lately appeared just last week, on forbes.com. It’s a piece by Steve Denning about the collapse of the consulting firm Monitor. The article has already generated thousands of comments and what its own author, in a follow-up post, calls a lot of “social media brouhaha”.
Most of the discussion so far focuses on Denning’s analysis of Monitor’s collapse. He traces the firm’s demise to Michael Porter’s flawed idea that “sustainable competitive advantage” could be gained in markets “by studying the numbers and the existing structure of the industry.” Monitor, in Denning’s view, was selling an “illusory product” that merely “supports and advances the pretensions of the C-suite.” Where Monitor’s approach to strategy failed was where it matters now more than ever: helping businesses connect with or “delight” customers, or innovate, or do things that customers (or, for that matter, society as a whole) want them to do.
Not everyone agrees with this analysis, of course, and Denning has been responding to criticism and comment on the Forbes site and on Twitter. I am more intrigued by what Monitor’s downfall might signify – whether it indicates that there are larger changes afoot.
Denning himself wonders if the firm’s collapse marks the end of an “era”. Several of his readers and Tweeters (including me) have suggested that pure strategy plays are simply no longer viable. But that observation only scratches the surface, I think. The downfall of Monitor may indicate something else as well – a larger change in the configuration of CEO or executive power within the enterprise, and the end of a certain idea or iconography of the CEO.
Denning approaches this very thought as he lays out his historical argument, which is basically the story of how Michael Porter got lucky and launched Monitor at precisely the right moment. When Monitor first appeared on the scene in 1979, writes Denning, a new era was dawning:
Pursuit of shareholder value (“the dumbest idea in the world”) was just getting going with a vengeance. The C-suite was starting to realize that they could cash in, big time. Along comes Michael Porter with a rain dance that justifies their cashing in. Porter arrived at just the right time. Hopefully that era is now coming to an end. People are starting to see the rain dance for what it is.
I would hasten to add that the dumbest idea in the world, the doctrine of shareholder value, helped usher in another very bad idea that is still very much with us — the idea of the “CEO” that started to take hold at roughly around the time that acronym first appeared on the scene, in the early 1970s. The CEO is largely an invention of that period.
I’ve taken up this theme in a few posts (here and here and here). A number of journalists and academics have addressed this same point, directly and indirectly. For Rakesh Khurana, the cultish construct of the CEO emerges out of the transition from managerial to investor capitalism. In response to the growing power of institutional investors (like pension funds, bank trusts, insurance firms, endowment funds, and money managers), boards had, by the 1980s, come to focus almost exclusively on the search for an outside celebrity CEO “savior” who would not only appease and appeal to newly-empowered institutional investors but also make a big splash in the newly-emergent American business press.
Needless to say, this further consolidated decision-making power at the top of the corporate hierarchy. At the same time, the newly powerful CEO had become a cultural icon of celebrity and success. We made a totem of corporate executive power.
If the mantra of investor capitalism was “shareholder value,” the central mystery of the new faith was the “agency” problem (as described in a now-canonical 1976 paper by Jensen and Meckling [pdf]). The interests of shareholders and managers were now to be “aligned.” Results have been mixed: a myopia set in, putting the “focus more on the short-term management of the share price,” writes Christopher Bennett on a Conference Board blog post, “and less on the long-term management of the business.”
In a Washington Post Op Ed, Michael Useem (who’s written the book on investor capitalism) takes it one step further. He connects the “unrelenting pressure of the equity market on company leaders to meet quarterly TSR expectations” with the offshoring of operations, “regardless of the impact on the domestic workforce.” Worse, it’s invited leaders to behave like sociopaths, or at least irresponsibly: “an incessant equity-market demand on company leaders to focus on their own advantage whatever the disadvantage for others” has made “fewer executives and directors…able to step forward to advocate what is required for a vibrant economy, not just what is required for their own prosperity.”
Shareholder value may have not have been the dumbest idea ever, as Denning would have it, but it was, at best, a Faustian bargain for American society. It was an important article of faith — and not just for the believers, but for society as a whole, during the period in which the celebrity CEO took on his (yes, usually his) unique features and cast, all the trappings of his office.
Strategy, especially Monitor’s brand of strategy, played a crucial role here. Denning refers us to a passage in Matthew Stewart’s The Management Myth:
Porter’s theory thus played to the image of the CEO as a kind of superior being. As Stewart notes, “For all the strategy pioneers, strategy achieves its most perfect embodiment in the person at the top of management: the CEO. Embedded in strategic planning are the assumptions, first, that strategy is a decision-making sport involving the selection of markets and products; second, that the decisions are responsible for all of the value creation of a firm (or at least the “excess profits,” in Porter’s model); and, third, that the decider is the CEO. Strategy, says Porter, speaking for all the strategists, is thus ‘the ultimate act of choice.’ ‘The chief strategist of an organization has to be the leader— the CEO.”
With the passing of Monitor, this concept of strategy may start to go by the board. And so, with any luck, will the idea of the CEO as the “superdecider” (Denning’s word) or super-anything. The rain dance is over, and we can now see the Big Chief as he really is.